The cost of South African labour is an inhibiting factor to offshore outsourcing of local labour, and the country is struggling to compete against countries such as India is this space.
This is according to Neels Van Tonder, CEO of UCS Software Manufacturing, the software development outsourcing arm of JSE-listed UCS Group. Jobs in IT and software development are sought after in India, where wage demands are not as high as in this country, he believes.
The SA software development industry has "flashes of brilliance and some really notable successes, but the country`s cost of labour is unfortunately higher [than in India].
"Our workers seem to have a culture of cutting off their noses to spite our faces - or their faces. Workers here will often jeopardise their jobs and the industry in which they work over a one or two percentage point raise in salaries. If they demand 8% and their employer offers only 6%, they are often prone to strike. Especially in a low-inflation environment, this is a negative cultural phenomenon - it happens far less in India," he says.
Instant gratification
SA`s less competitive position in the offshoring market does not only stem from high labour costs, says BMI-TechKnowledge research manager Roy Blume.
"It`s a bit strong to say that South Africans are pricing themselves out of the market. We are up against lower cost structures, and skills in India are simply cheaper," he says, but adds that the supply and demand dynamics of the outsourcing market are changing.
"The market is becoming more competitive and I would say India is starting to price itself out of the market."
However, Blume does admit that South Africans have a culture of instant gratification - wanting more now.
"Labour strikes may appear short-sighted from an outside perspective, but there are groups in SA that have realised they are in demand and can obtain instant gratification. But this is stabilising."
Government buy-in
Countries such as China, Eastern Europe and the Philippines are becoming major players in IT offshoring, but India still has the edge over other countries because it has phenomenal support of government - and has a huge pool of talent to tap into, Van Tonder notes.
"Clearly, the sustained strength of the rand has not made things easier [for South Africans]. However, besides India`s large pool of talent, one of the biggest things working in its favour is the Indian government is making huge concessions in order to attract outsourcing business for local companies, and has been for some time. It has taken what the Irish government did in the 1980s and 1990s one step further."
He argues that this is something the local industry should start looking at: opening up more dialogue with government to try and work out a path where committed outsourcing companies can perhaps gain more support in the way of initiatives, such as private public partnerships, wage and tax concessions.
Ultimately, says Van Tonder, outsourcing is about forming alliances which enable people to move capability across different opportunities and geographies by being much more efficient in their deployment of these capabilities.
"Development outsourcing is a quick way of putting two groups of people and capabilities together. With the increasing levels of sophistication and complexity within the software world there is no substitute for domain expertise," he says.
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